Coronavirus (COVID-19): how manufacturers and retailers are now using online to sell directly to consumers

Simon Mayhew
Head of Online Retail Insight
@RetailAnalysis

Date : 15 April 2020

With the Coronavirus (COVID-19) pandemic requiring shoppers globally to remain at home, retailers exhausting online order capacity, and rationalising ranges, now is the time for businesses to use online to sell directly to consumers (D2C). Demand is so high for online ordering and home delivery, that the cost to acquire and retain shoppers, a key barrier to launching a D2C operation, is currently removed.

Here I highlight five ways in which businesses are responding to shoppers’ needs and growing their online businesses:

1. Existing D2C operators increasing capacity:

Online meal box providers have benefited from the shift to online and are quickly trying to increase capacity. Mindful Chef in the UK, usually acquires 150 customers a day, but on the 22nd March hit 2,500 (Source: The Drum). HelloFresh expects its first-quarter total revenue to be up 69% year-on-year (YoY) and has had to increase its workforce in its UK factory by 50%. However, it’s not just fresh and ambient food that’s benefiting, but many more categories. For instance, in the US, Winc, a wine D2C, saw a 578% increase in new members in the week ending March 21st, whilst pet specialist, Chewy, expects its first-quarter sales to be up 37% and is hiring 10,000 new employees at its fulfilment centres. Currently, offering product availability and convenient delivery is enough to succeed. Financially, these D2Cs are no longer having to invest in customer acquisition or retention but they will face higher labour and health and safety costs.

2. New manufacturer websites:

Some manufacturers have responded by launching their own branded websites, using third parties for deliveries. For instance, in the UK, Danone’s Aptaclub, selling its range of Aptamil baby milks and formulas, delivered by the courier company, Yodel. Heinz has just launched its, Heinz to home service, offering an Essentials Bundle box for £10, delivered by the third-party Hermes. However, it’s the small and medium enterprises that are quickly pivoting to D2C, and it’s across a broad range of categories. For instance, in the UK, Fatherson Bakery, Tukin (curries and ready-to-eat wraps), Direct Meats, or Mash Direct – all of them are offering, easy-to-use websites, convenient delivery, and post-purchase customer service. Most of these are short-term, quick wins, capitalizing on the low or nonexistent customer acquisition costs. When retailers’ product and home delivery slot availability normalises, many of these operations suddenly become inconvenient and expensive.

3. Marketplaces:

Some companies sell directly to shoppers on marketplaces, or 3P. In response to COVID-19, Amazon is now prioritising third-party sellers of essential items. With this approach, there are no website set-up costs, the website gets high, organic traffic, and the D2C operation benefits from using a proven logistical network. However, for newcomers, it’s more than likely the brand and products are already being sold on the marketplace, creating a competition to win the Buy Box. This can be challenging if manufacturers are used to heavily discount products, for bulk purchases, or to clear through residual stocks, or achieve short-term sales targets. To succeed on marketplaces, manufacturers have to have processes in place to control the distribution of their products so the D2C operation maintains control of the Buy Box.

4. Couriers:

More courier companies, or takeaway aggregators are now selling directly to consumers. In Australia, Deliveroo is now a grocery retailer, opening an essentials store, enabling shoppers to order online and get home delivery. These companies also host manufacturers’ shop-in-shops on their websites. For instance, Rappi, in Colombia, supports brands such as Durex and Huggies. Couriers/takeaway aggregators selling food and consumer goods is a pre COVID-19 trend that’s now accelerating. These companies have high and frequent traffic to their websites, and comprehensive logistical networks.  That makes them a convenient solution for brands, competition for traditional retailers, and potential merger and acquisition targets.

5. New retailers:

It’s not just manufacturers using online to sell directly to consumers, but also wholesale retailers. With spend shifting from out-of-home, to in-home, wholesalers have had to open to the public. In France, Carrefour has enabled shoppers to order online and click and collect from its Promocash wholesale business. Whilst in the UK, Bidifood has started to deliver to customers’ homes.

We’re also seeing food service businesses launch online grocery businesses. In the US, Panera Bread is now offering high-demand pantry items, whilst in the UK, restaurant chain Leon is selling groceries online, with deliveries from Uber Eats or Deliveroo.

The future?

In the short-term, we’ll see more direct-to-consumer operations launching, responding to poor product and home delivery slot availability. I hope we see more collaboration amongst manufacturers, inside and outside our industry, to offer something convenient and better. Can I please order a Family Night In box, that provides our favourite treats, and the opportunity to watch our favourite movies?

Longer-term as product availability returns to normal and retailers increase their online order capacity, many of these operations fail to fulfil shoppers’ needs. Some will invest to try and retain their new shoppers, others will accept lower volumes, and some will cease operations.

Successful, sustainable, online direct-to-consumer businesses must meet shoppers’ fundamental needs: value (price and quality), choice (differentiated ranges and excellent product availability), and convenience (ordering, fulfilment, post-sales care). Personally, I don’t think that’s enough to keep the customer acquisition costs down, to retain customers, and drive lifetime customer value. D2Cs need to drive frequent, organic traffic to their websites, and developing a sense of community is one way of achieving this. D2Cs have to differentiate and prevent competitors entering the market and stealing share. There are many examples of D2Cs using personalisation to achieve this.

Now is the time for online direct to consumer sales, but for many companies, I don’t think it will last that long. 

For more on Coronavirus (COVID-19)

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